Computer Applications 1

Toyota Indus Company

Lubna Siddiqui

Muhammad Ahmed (8668)

Syed Hamza Hashmi (8937)
Razi Abid (10110)
1 Toyota Indus Company

Contents
Introduction....................................................................................................................................2
History............................................................................................................................................3
Vision Statement............................................................................................................................3
Mission Statement..........................................................................................................................4
Overview........................................................................................................................................4
Current Ratio..................................................................................................................................6
Quick Ratio.....................................................................................................................................6
Inventory Turnover.........................................................................................................................7
Total Asset Turnover.......................................................................................................................7
Fixed Assets Turnover.....................................................................................................................8
Total debt to Total Assets...............................................................................................................8
Profit Margin on Sales....................................................................................................................9
Basic Earning Power.......................................................................................................................9
Return on Total Assets (ROA).......................................................................................................10
Return on Common Equity (ROE).................................................................................................10
Price/ Earning...............................................................................................................................11
Market/Book value.......................................................................................................................11
Liquidity....................................................................................................................................12
Degree of Financial Leverage....................................................................................................12
Profitability...............................................................................................................................13
Efficiency...................................................................................................................................13
Value.........................................................................................................................................14
Conclusion....................................................................................................................................16
2 Toyota Indus Company

Automobile Sector in Pakistan

Introduction

Automobile sector is one of the fastest growing sectors in Pakistan. It contributes towards the
nation’s economy in the form of Technology Transfer, Employment, Investment and much more.
Automobile sector contributed over Rs.23 billion to the national exchequer in the year 2003-04.

As the industry's growing, so are the Automobile companies. Every manufacturer is in the
process of increasing production capacity to meet customer demands. Throughout the 90's the
annual automobile production remained constant around 45,000 but due to consistent policies
and positive macro-economic conditions the industry boomed to over 120,000 units/annum in
just 4 years.
3 Toyota Indus Company

Toyota Indus Company

History

Indus Motor Company (IMC) is a joint venture between the House of Habib, Toyota Motor
Corporation Japan (TMC), and Toyota Tsusho Corporation Japan (TTC) for assembling,
progressive manufacturing and marketing of Toyota vehicles in Pakistan since July 01, 1990. IMC
is engaged in sole distributorship of Toyota and Daihatsu Motor Company Ltd. vehicles in
Pakistan through its dealership network.
The company was incorporated in Pakistan as a public limited company in December 1989 and
started commercial production in May 1993. The shares of company are quoted on the stock
exchanges of Pakistan. Toyota Motor Corporation and Toyota Tsusho Corporation have 25 %
stake in the company equity. The majority shareholder is the House of Habib.
IMC's production facilities are located at Port Bin Qasim Industrial Zone near Karachi in an area
measuring over 105 acres.
Indus Motor Company’s plant is the only manufacturing site in the world where both Toyota and
Daihatsu brands are being manufactured.
Heavy investment was made to build its production facilities based on state of art technologies.
To ensure highest level of productivity world-renowned Toyota Production Systems are
implemented.
IMC's Product line includes 6 variants of the newly introduced Toyota Corolla, Toyota Hilux
Single Cabin 4x2 and 4 versions of Daihatsu Cuore. We also have a wide range of imported
vehicles.

Vision Statement

"IMC’s Vision is to be the most respected and successful enterprise, delighting customers with a
wide range of products and solutions in the automobile industry with the best people and the
best technology".

 The most respected.

 The most successful.
 Delighting customers.
 Wide range of products.
 The best people.
 The best technology.
4 Toyota Indus Company

Mission Statement

Mission of Toyota is to provide safe & sound journey. Toyota is developing various new
technologies from the perspective of energy saving and diversifying energy sources.
Environment has been first and most important issue in priorities of Toyota and working toward
creating a prosperous society and clean world.

Overview

Indus Motors is the country's second largest auto manufacturer, after the Pak Suzuki Motors,
located near Bin Qasim Karachi, having an assembling capacity of 55,000 units per annum. Its
core business is to manufacture and market cars. In addition, the company also sells auto parts
and accessories.
IMC's production facilities are located at Port Bin Qasim Industrial Zone near Karachi in an area
measuring over 105 acres. Indus Motor Company’s plant is the only manufacturing site in the
world where both Toyota and Daihatsu brands are being manufactured. Heavy investment was
made to build its production facilities based on state of art technologies. To ensure highest level
of productivity world-renowned Toyota Production Systems are implemented.
Last year, the company has completed its expansion plan that increased its capacity to 55,000
units per annum from 37,000 units earlier. The company has further expansion plan to almost
double its capacity to 100,000 units by FY11 for which it has already acquired land.
Toyota Motor Corporation of Japan has recently announced its decision to acquire an additional
9.83m shares in Pakistan's Indus Motor Company by taking over stock 3.93m shares (5.0% of the
paid up capital) from overseas investors (AG Limited) and remaining 5.90m shares (7.5% of the
paid up capital) from general public through a buy-back offer at the purchase price of Rs. 370
per share. However, such public offer would not include the stock held by the companies and
the individuals, who represent members of the House of Habib (HoH). Toyota Corporation and
its affiliate Toyota Tsushu Corporation currently held 9.83m shares each in Indus Motor, which
together constituted 25% of the company's paid-up capital. After the said transaction, Japanese
giant car maker's stake in Indus Motor Company would raise to 37.5% from currently 25%.
5 Toyota Indus Company

Ratio Analysis

Ratios Formulae 2009 2008 2007

1.6 2.5 1.8

Current Ratio Current Assets/Current Liabilities 9 6 3

(Current Assets - Inventory)/Current 1.2 1.8 1.4

Quick Ratio Liabilities 8 6 4

9.2 9.2 13.6

Inventory turnover Sales/Inventories 6 6 6

9.6 10.2 18.6

Fixed assets turnover Sales/Fixed Assets 3 7 6

1.8 3.0 2.4

Total Assets turnover Sales/Total Assets 3 1 9

0.5 0.3 0.6

Total debt to total assets Total Debt/Total Assets 0 1 1

0.3 0.0 1.0

Profit Margin on Sales Net income/Sales 7 6 6

0.1 0.2 0.2

Basis Earning Power EBIT/Total Assets 0 6 7

0.0 0.1 0.1

Return on Total Assets(ROA) Net income/Total Assets 7 7 8

Return on common 0.1 0.2 0.3

equity(ROE) Net Income/Common Equity 3 4 4

6.0 6.8 8.7

Price/Earning Price per share/Earning per share 8 6 5

Market price per share/Book value per 10.7 20.0 30.5

Market/Book share 7 1 5
6 Toyota Indus Company

Current Ratio

3.00

2.50

2.00

1.50

1.00

0.50

-
2009 2008 2007

Quick Ratio

2.00
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
-
2009 2008 2007

Inventory Turnover
7 Toyota Indus Company

14.00

12.00

10.00

8.00

6.00

4.00

2.00

-
2009 2008 2007

Total Asset Turnover

3.50

3.00

2.50

2.00

1.50

1.00

0.50

-
2009 2008 2007
8 Toyota Indus Company

Fixed Assets Turnover

3.50

3.00

2.50

2.00

1.50

1.00

0.50

-
2009 2008 2007

Total debt to Total Assets

0.70

0.60

0.50

0.40

0.30

0.20

0.10

-
2009 2008 2007
9 Toyota Indus Company

Profit Margin on Sales

1.20

1.00

0.80

0.60

0.40

0.20

-
2009 2008 2007

Basic Earning Power

0.30

0.25

0.20

0.15

0.10

0.05

-
2009 2008 2007
10 Toyota Indus Company

Return on Total Assets (ROA)

0.18
0.16
0.14
0.12
0.10
0.08
0.06
0.04
0.02
-
2009 2008 2007

Return on Common Equity (ROE)

0.35

0.30

0.25

0.20

0.15

0.10

0.05

-
2009 2008 2007
11 Toyota Indus Company

Price/ Earning

9.00
8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
-
2009 2008 2007

Market/Book value

35.00

30.00

25.00

20.00

15.00

10.00

5.00

-
2009 2008 2007
12 Toyota Indus Company

Ratios can be divided in five heads that are:

Liquidity

In the state of short run solvency, decrease in both the current ratio by (0.86) and quick
ratio (0.57) as was recorded in the year 2009. The current assets liquidity is also affected by the
collections of the receivables from the debtors, the average collection period of the company
has increased by 1 day in year 2009. The Inventory Turnover shows an increase of 3.52 times.
This ratio is important for the current and potential creditors and suppliers along with
management.
The current ratio is vital to the suppliers because they primarily focus on the company’s ability
to pay off its current obligations through their current assets, whereas the quick ratio enlightens
a company’s ability to settle its obligations with its most liquid assets without relying on the
turnover of inventories. Suppliers need these ratios to make the decision about the term of
credit, company’s financial soundness etc. Hence the company’s trend of current and quick ratio
enables supplier to feel in a less risky situation. The creditors are also interested in the current
ratio and quick ratios analysis in order to decide about their credit policies and the amount of
money lent (if any) and whether to provide restrictive or lenient credit policies to company.
Almost every ratio is significant for the management. As far as current and quick ratios are
concerned, the management requires them to manage day to day business activities e.g.
payment to creditors, payment of short term loan etc. They require these ratios to strategize
their daily operations. For management the company’s trend is favorable, as they have more
liquid assets to meet the short term loan payments. Such ratios are also important for financial
analysts and advisors. 

Degree of Financial Leverage

Long-term Debt to Total Capitalization ratio has not shown a consistent increasing trend during
the past 3 years. As LTD / Total Capitalization shows the financial leverage of a firm, calculated
by dividing long-term debt by the amount of capital available, the concerned company is eye-
catching for the investors and financial advisors as it does not raise funds through debt
financing, it is more involved in equity financing which is more attractive to the shareholders.
Debt management ratios are of great importance to the owners, management and financial
advisors as well. Management is entrusted with the responsibility of utilizing the business assets
efficiently and effectively and at the same time the management has to seek methods of
reducing business costs. On the other hand, owners are concerned with the settlement of
obligations towards the financial institutions and the degree of financial leverage.

Competitors of a company are also concerned with the debt management ratios of the company
as they want to know about the debt management policies of the company due to which the
financial institutions are happier to provide them with loans and as in the case of Toyota, now
it’s more involved in internal financing, this leads to high returns and thus competitors may wish
13 Toyota Indus Company

to merge with Toyota, so that they can avail the company’s resources and have access to the
new markets. This can help the company to have diversified resources and more room for
expansion in a cost effective way.
The Times Interest Earned ratio is of importance to the management, owners and creditors.
With regard to the concerned company, the ratios have increased over the years. The times
interest earned ratio indicates a company's ability to meet its debt obligations. It is usually
quoted as a ratio and indicates how many times a company can cover its interest charges on a
pretax basis. The management and owners, both are interested in such ratios in order to avoid
any bankruptcy. In others instances, creditors are informed whether the company is able to pay
the interest on bonds. Hence the company’s situation is favorable for creditors as TIE has
increased drastically, for management it’s a favorable growth sign, for competitors it’s a sign of
high level of competitiveness.

Profitability

The tremendous growth in the year 2009 was due to the increase in the sales due to the
rising inflation rate and the greater number of units sold by the company in the year but
there was also a rise in the cost of the sales.
The return on total assets is an indicator of how profitable a company is relative to its total
assets. ROA gives an idea as to how efficient management is at using its assets to generate
earnings. ROA tells you what earnings were generated from invested capital (assets). By
observing the real purpose of Return on Assets ratio, it is quite clear that owners would be
interested in knowing that to what extent the assets / capital have been utilized to generate
earning. Hence from the decreasing trend of ROA, shows the company’s inefficiency in properly
utilizing its available assets to generate sales. It is the responsibility of the company’s
management to make the optimum use of available resources, so they should implement
strategies to increase the efficiency of assets either by selling idle assets or improving their
efficiency.
The ROE is a measure of a corporation's profitability that reveals how much profit a company
generates with the money shareholders have invested, it is also known as "return on net worth"
(RONW). From this explanation of ROE it is evident that the management, owners, shareholders,
independent financial advisors and financial press etc. Stock Exchanges may also have interest in
the return on assets and equity ratios. The management tries to generate maximum profit with
the utilization of shareholders investment. Obviously, the shareholders want to maximize their
savings / investments, which in turn urge the management to invest the accumulated funds in
prolific ventures. On the other hand the owners wish to retain the confidence of their investors,
as higher earnings means higher returns to the investors.

Efficiency

Indus Motors fares reasonably above the industry average in terms of inventory turnover;
this being a virtue of its continuous innovation, and understanding and catering to the
market needs. However, in terms of collection of receivables IMC lags behind its
14 Toyota Indus Company

competitors. Although the operating cycle is decreasing, but showing efficiency in terms of
its cash conversion cycle, it needs to bolster it further to be at par with the industry
standards. But year 2009, has brought radical decline in all the operating activities of Indus
motors. Total assets turnover has reduced to 0.18 at year end. Fixed asset turnover has also
decreased to 2.48 which are due to selling of fixed assets by the company in 2009.

Value

EPS is a portion of a company's profit allocated to each outstanding share of common stock. EPS
serves as an indicator of a company's profitability. EPS is an important ratio for shareholders,
owners and financial advisors. Investors want to know their earning per share and dividends
which depends on the net income of the company. In economic turbulence of 2007-08 the
investors would be more risk averse, especially after the economic crises situation when the
dividend per share was declined as well due the declining profits in the year 2007-08
competitors will also be affected by the EPS of the company as the company’s shows an
increasing trend till 2007, they can estimate the current and future earning of the company in
order to plan their own more aggressive approach, but in 2008 , the EPS declined depicting a
negative growth.
P/E ratio is a valuation ratio of a company's current share price compared to its per-share
earnings. However in past, we can see that company had an increasing trend of P/E ratio as well
as it increased the Dividend per share to make their investors happy by sharing profits with
them and attracting the new investors as well. This increasing trend of PE ratio would bring the
competitors into the alarming situation, as more of the investors will be attracted towards the
company due to greater price earnings ratio.
The Dividend per share is a proportion of declared dividends for every ordinary share issued.
Investors and financial advisors are interested in DPS ratio, as every investor wants to earn the
maximum rewards for tying up their savings and financial advisors could instruct their clients to
invest their money in a firm which has a track record of paying higher dividends. Company had
an increasing trend till 2007, but then it declined in 2008, hence reducing its attractiveness to
potential and current investors. This also made current investors to decide upon whether to sell
or keep the shares.
Dividend yield is a financial ratio that shows how much a company pays out in dividends each
year relative to its share price. In the absence of any capital gains, the dividend yield is the
return on investment for a stock. Dividend yield is a way to measure how much cash flow you
are getting for each dollar invested in an equity position. Investors who require a minimum
stream of cash flow from their investment portfolio can secure this cash flow by investing in
stocks paying relatively high, stable dividend yields.
Dividend Payout Ratio is a percentage of earnings paid to shareholders in dividends. It is
calculated as (Dividends / Net Income). From this explanation it is evident that DPR is important
from the viewpoint of management and owners. The ultimate decision-making power vests in
the owners. This ratio helps them to observe that how much of the company’s earnings have
been retained and what part has been paid out as dividends.
15 Toyota Indus Company
16 Toyota Indus Company

Conclusion

The importance of ratio analysis in today’s dynamic corporate world cannot be underestimated.
Ratio analysis is a diagnostic tool that helps to identify problem areas and opportunities within a
company. The most frequently used ratios by Financial Analysts provide insights into a firm's:

 Liquidity

 Degree of financial leverage or debt

 Profitability

 Efficiency

 Value

Ratios are guidelines and must be considered together with other factors, such as, volatile
economic conditions, collateral, asset turnover, industry performance, confidence and track
record of the owners, etc. A financial ratio is a useful tool only when compared with other
ratios. By itself, it is ineffective and useless and will not help you to determine the health or
performance of a business. Ratios used in financial statements reflect the mathematical
relationship between two amounts and are expressed in percentages, fractions or decimals.
While ratios will not provide solutions for existing problems, they can pin-point operational
difficulties for management to take corrective action.